History can be a helpful guide for investment decisions

If you are a seasoned do-ityourself investor who lived through the dot-com bubble, the financial crisis and the coronavirus market, think back to 2000.

Say you invested $10,000 in an S&P 500 Index fund in January 2000. By March 31, 2024, your investment had grown to $55,000 at a rate of 7.3 percent annualized — but, not before dropping to $6,229 by the end of 2002. From March 2000 to October 2002, it was down about 45 percent.

The fund dropped again in 2008, by 37 percent, its worst year since 2000, and again by 4.5 percent in 2018 and 18.2 percent in 2022. The fund’s best year between January 2000 and March 2024 was 32 percent in 2013.

A popular technology fund that I’ll call the “Tech Fund” grew from $10,000 to $115,000, a 10.6 percent average annual return, more than doubling the March 31, 2024 balance of the S&P 500 fund — but not before dropping to $3,478 by the end of 2002, a decline of about 80 percent from January 2000. The Tech Fund’s best year was 85 percent in 2009; its worst year had a 51 percent drop in 2002.

Both funds own Apple and Nvidia.

A 2000 investment of $10,000 in Apple dropped dramatically to $2,800 by the end of 2002, a decline of about 79 percent from its January 2000 price. Apple’s best year during the January 2000 to March 2024 period was 201 percent in 2004; its worst year was a negative 71 percent in 2000.

Nvidia started the dot-com bear market quite differently. In 2000, Nvidia rose about 40 percent compared to a decline of 9 percent for the S&P 500 fund. The year 2001 at 308 percent, turned out to be the stock’s best year, compared to a decline of 12 percent for the S&P 500 fund, while 2002 was Nvidia’s worst year, down 83 percent, which wiped out the gains of the previous two years. However, Nvidia’s 2002 balance of $9,809 still outpaced the S&P 500 fund’s balance of $6,229.

March 2000 was the peak of the dot-com bubble that led to the three-year bear.

Headlines such as “Stock Market in Steep Drop as Worried Investors Flee; Nasdaq Has its Worst Week” (April 15, 2000, New York Times), caught investors’ attention, continuing even as the bear was coming to an end: “S&P 500 Index Drops to its Lowest Level Since 1997” (July 19, 2002, Bloomberg News) or “SCREAM! Hold On for a Wild Ride” (July 21, 2002, New York Times).

Major price declines occurred not just once during the dot-com bubble, but also through the financial crisis and the coronavirus bear market, and intra-year declines occurred every year. For example, eight out of 12 months in 2002 and 2008 were negative for the S&P 500 Index. In 2023, when the S&P 500 Index returned 26 percent, four months were negative. In 2019, when the S&P 500 Index returned 31 percent, two months were negative.

Even the savvy investor needs to really think about how he or she will react during declines. Should declines lead one to buy more, sell some or all, or hold on for a set or unknown period of time?

Personal situations dictate the most appropriate action. For example, a retiree whose living expenses are covered in full by Social Security and pension income with an inflation adjustment is in a very different position from a retiree who depends on his portfolio for cash flow.

The first retiree would have the luxury of investing aggressively if he thought in terms of leaving a legacy. The second retiree would need to prioritize cash flow management before deciding how to invest. This retiree would have been in a much more difficult position making buy, sell and hold decisions, especially during downturns.

No matter how you look at it, you can’t help but see that emotion would play a role. What would you have done if you lived through this time frame day by day, without the benefit of hindsight?

In case you are wondering: $10,000 invested in Apple in January 2000 grew to $2.2 million, or 25% annualized by March 31, 2024. A comparable investment in Nvidia grew to $10 million, 33 percent annualized.

The data for this column comes from an online tool called Portfolio Visualizer (portfoliovisualizer.com). Give the free version a try. Conflict Disclosure: The author and her firm’s clients own the investments discussed in this story, either directly or indirectly.

Seasoned investment counsel (tinyurl.com/52nus8hz) and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, “The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients)" (tinyurl.com/4u7h9pjs), published by the American Bar Association. Write to Julie at readers@juliejason.com. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.